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A company sells two products--J and K. The sales mix is expected to be $3 of sales of Product K for every $1 of sales of Product J. Product J has a contribution margin ratio of 40% whereas Product K has a contribution margin ratio of 50%. Annual fixed expenses are expected to be $120,000. The overall break-even point for the company in dollar sales is expected to be closest to:

Respuesta :

Shahzaibfaraz

Answer:

The break even sales in dollars is expected to be closest to $252632.

Explanation:

Break even in dollars is the amount of revenue in dollars where total revenue equals total cost.

To calculate the break even sales in dollars, we first need to calculate the weighted average contribution margin ratio.

Weighted average contribution margin = wJ * cmJ + wK * cmK

Where,

  • wJ and wK represents the wight of both products in the sales mix
  • cmJ and cmK represents the contribution margin ratio of both the products

Total sales per sales mix = 3 + 1 = 4

Weighted average contribution margin = 1/4 * 0.4  +  3/4 * 0.5  =  0.475

Break even in dollars = 120000 / 0.475 = $252631.5789 rounded off to $252632

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